Boycotts, contingent fees and offshore work

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1. The Arab boycott restriction

The Defense Federal Acquisition Regulation Supplement (DFARS) bars contracts with foreign entities that have not certified on the secondary Arab boycott of Israel. Under 10 U.S.C. 4659, a contract is not entered into with a foreign entity unless it has certified that it does not comply with that boycott (DFARS 225.7601). For contracts awarded to the Canadian Commercial Corporation (CCC), the CCC submits a certification from its proposed subcontractor with the other required precontractual information (DFARS 225.7602). How the CCC is used is covered in contracting with Canadian suppliers.

Three exceptions apply (DFARS 225.7603). The restriction does not apply to purchases at or below the simplified acquisition threshold (DFARS 225.7603(a)). Nor does it apply to contracts for consumable supplies, provisions or services that support United States forces or allied forces in a foreign country (DFARS 225.7603(b)). The third exception covers contracts on the use, acquisition or lease of equipment, technology, data or services for intelligence or classified purposes in the interest of national security (DFARS 225.7603(c)).

The Secretary of Defense may waive the restriction on the basis of national security interests, and waiver requests follow Procedures, Guidance and Information (PGI) 225.7604 (DFARS 225.7604). Unless an exception applies or a waiver has been granted, the provision at 252.225-7031, Secondary Arab Boycott of Israel, goes in all solicitations (DFARS 225.7605). That includes solicitations using Federal Acquisition Regulation (FAR) part 12 procedures for commercial products and commercial services. If the solicitation includes the provision at FAR 52.204-7, the boycott provision is not listed separately.

2. Foreign government exclusionary practices

The clause at 252.225-7028 carries an April 2003 date and is prescribed at 225.7307(b) (DFARS 252.225-7028). It bars the contractor and its subcontractors from taking into account the exclusionary policies or practices of any foreign government in employing or assigning personnel, if two conditions are met. First, the personnel will perform functions required by the contract, either in the United States or abroad (DFARS 252.225-7028(a)). Second, the foreign government's policies or practices are based on race, religion, national origin or sex (DFARS 252.225-7028(b)).

3. Contingent fees in foreign military sales

The clause at 252.225-7027, also from April 2003, is prescribed at 225.7307(a) (DFARS 252.225-7027). Contingent fees, as defined in the Covenant Against Contingent Fees clause, are generally an allowable cost when paid to certain recipients, except as the clause provides for foreign military sales (DFARS 252.225-7027(a)). One is a bona fide employee of the contractor. The other is a bona fide established commercial or selling agency that the contractor maintains for the purpose of securing business.

For foreign military sales (FMS), some contingent fees are unallowable unless the foreign customer identified them and approved payment in writing before contract award (DFARS 252.225-7027(b)). For sales to governments named in the clause, contingent fees in any amount are unallowable (DFARS 252.225-7027(b)(1)). For sales to other governments, contingent fees exceeding $50,000 per FMS case are unallowable (DFARS 252.225-7027(b)(2)).

4. Reporting work outside the United States and Canada

Under 10 U.S.C. 4603, offerors and contractors must notify the Department of Defense (DoD) of any intention to perform part of a DoD contract outside the United States and Canada (DFARS 225.7201). The duty applies when that part exceeds $900,000 in value and could be performed inside the United States or Canada (DFARS 225.7201(a) and DFARS 225.7201(b)).

The subpart does not apply to contracts for commercial products, commercial services, construction, ores, natural gas, utilities, petroleum products and crudes, timber (logs) or subsistence (DFARS 225.7202). Outside those acquisitions, the provision at 252.225-7003 is used in solicitations with a value exceeding $20 million (DFARS 225.7204(a)). It calls for a report of intended performance outside the United States and Canada submitted with the offer. The clause at 252.225-7004 covers the same report submitted after award and is used in solicitations and contracts over $20 million (DFARS 225.7204(b)). Contracting officers distribute reports submitted with offers under PGI 225.7203 (DFARS 225.7203).

5. End use certificates and international agreements

Contracting officers considering the purchase of an item from a foreign source may be asked to sign an end use certificate (DFARS 225.802-71). The certificate indicates that the Armed Forces of the United States is the end user of the item. It also indicates that the U.S. Government will not transfer the item to third parties without authorization from the government of the selling country. In that situation, DoD Instruction 2040.03, End Use Certificates, provides guidance.

Information on memoranda of understanding and other international agreements is available at PGI 225.802(b) (DFARS 225.802(b)). Contracts requiring performance outside the United States and Canada follow PGI 225.802-70, and subpart 225.3 on contracts performed outside the United States also applies (DFARS 225.802-70).

6. Performance and delivery abroad

If an acquisition requires services performed or supplies delivered outside the United States, the procedures at PGI 225.370(a) apply (DFARS 225.370(a)). For work in Germany, U.S.-German bilateral agreements govern whether contractor employees are eligible for logistics support or base privileges (DFARS 225.370(b)). The procedures are in Army in Europe Regulation 715-9. For work in Japan or Korea, PGI 225.370(b) covers bilateral agreements and policy on contractor employees (DFARS 225.370(c)). For work in the U.S. Central Command area of responsibility, theater business clearance and contract administration delegation instructions are at PGI 225.370(d) (DFARS 225.370(d)).

Performance in a designated operational area means performance of a service or construction, as the contract requires (DFARS 225.301-1(a)). For supply contracts, it includes associated services such as installation or maintenance, but not production of the supplies or associated overhead functions. For DoD, the section also applies to all personal services contracts (DFARS 225.301-1(c)). The term designated operational area itself is defined in the clause at 252.225-7040 (DFARS 225.371-2).

Several provisions point to further guidance. Antiterrorism and force protection information for contracts requiring performance or travel outside the United States is available from offices listed in PGI 225.372-1 (DFARS 225.372-1). Contract administration guidance for contingency operations is at PGI 225.373 (DFARS 225.373). The use of electronic business tools in a contingency, humanitarian or peacekeeping operation is addressed at 218.271 (DFARS 225.374). Guidance on procurement support for a geographic combatant command's theater security cooperation efforts is at PGI 225.78 (DFARS 225.7801).

Key terms

Secondary Arab boycott certification	A foreign entity's statement that it does not comply with the boycott.
Exclusionary policies	Foreign government practices based on race, religion, national origin or sex.
Contingent fee	A fee for securing business, limited in FMS contracts.
Report of intended performance	Notice of planned work outside the United States and Canada.
End use certificate	A seller's request confirming end use and limits on transfer.
Designated operational area	A term defined in 252.225-7040 for contracts performed abroad.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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